IV. The Lack of Uniformity in Capitalistic World Economy

One of the most striking signs of the period of crisis is the lack of uniformity in capitalistic world economy. World business is constituted of loosely connected areas, in each of which the progress of the turn of the market is a different one, with currencies of unstable value substituted for gold as world money, with entirely different conditions obtaining with reference to credits, &c.

While under “normal” capitalism the progress of the course of business is the same for all capitalistic countries, we note the unusual condition of late that the different capitalistic countries have booms at different times, and that the progress of these booms is contradictory and opposite. This is hard to express in figures, since the economic statistics of most countries are not adequate for this purpose. (In the Appendix, Table IV, a, b, c, we give the most important economic figures for the United States, France, and England.) On the basis of our observations of the turn of the market we can point out the following development on a quarterly basis:

This characterisation of the course of the market is, of course, inadequate and vulnerable as to details, since within the individual countries, too, there is not uniform trend of business in all branches of production. (Even during the peak of the boom in the United States there were branches of industry that remained below the standard of 1919.) Hence, in estimating the course of the market one can arrive at different results depending upon the importance that one attaches to every branch of production. In any case the table demonstrates that the course of business is not a uniform one.

Also, it may be asserted that the improvement in business in one country is bought at the expense of that in another. Thus the improvement in the English heavy industry was attained at the price of the cessation of production in the Ruhr Valley and in part also in France. It would seem that capitalism is unable to bring about a general boom!

The most important event of the last three years is the American boom. It reached its peak in April, 1923. (See Table IVa in the Appendix.) Of fundamental importance is the following:—

(1) That the American boom happened as an isolated fact and remained isolated, and failed to draw in its wake a boom of European capitalism.

(2) That it could take place although the crisis continued in Europe.

(3) The American boom depended entirely upon the purchasing power of the home market and had nothing to do with increasing export. This is manifest from the figures for the foreign trade of the United States. In millions of dollars, the trade figures were:—

We see: the export of goods did not increase during the period of greatest boom. If we take into account the very high price of cotton in 1923, the export of goods of all kinds must have been less than in 1921. More characteristic even is the fact that during the highest peak of the boom, during the months of March, April, and May, 1923, the United States had a passive trade balance—a very exceptional case. The capacity of the home market to absorb the product was so great that, although production had been increased to the utmost, it was not adequate to the needs: Dutch tiles, French iron, English coal—everything found its way to America and was bought there. As the boom subsided, imports decreased rapidly, while exports increased.

This change means that a boom in the United States no longer had a stimulating effect upon the European course of business. European capitalism was unable to participate in this phase of business improvement; so overwhelming was the effect of the period of crisis that the phase of individual business improvement was suppressed by it.

Some are of the opinion that a boom will come in Europe only after the Reparations Problem has been solved on the basis of the Experts’ Report. We consider this an erroneous standpoint, as we shall develop later. But even if the point were well made, the deduction would have to be made that the economic life of the United States had been completely severed from that of Europe and that boom and crisis do not coincide.

For, nobody can doubt to-day that the American boom has reached its end. All newspaper reports (the official statistics appear only two or three months later) agree in saying that the decline of business has extended to the entire heavy industry. The price of iron was reduced. Of 15 smelters of the Carnegie Company in Feddell, six were extinguished at one time. Tin works are employed at only 50 per cent. capacity. Production in the steel trust decreased 6-7 per cent. in April, that of independent steel companies 8-10 per cent. during March. Ford is said to have one million cars on hand. We will not presume to predict with certainty that a sharp crisis will soon ensue. But the capitalists of the United States will try to postpone the crisis by forced exportation of industrial product, and thereby greatly detract from the possibility of a European boom that is expected by optimists.

Let us briefly touch upon the special reason for the boom. In our opinion it was largely due to the circumstance that in the United States also accumulation was insufficient during the war. There was too little building and the railway material was not renewed sufficiently. The gigantic boom in the building industry and the enormous orders of the railways were, aside from the automobile industry, the most important factors of the boom which has just come to an end. This urgent call for orders to replace the gaps of the war period has already been satisfied; agriculture, on account of the “shear,” is less able to absorb orders; Europe cannot buy, because it has no goods with which to pay America. For this reason the boom period, which, by the way, lasted very long—for three years—had needs to come to an end.

The relation of the United States to Europe is one of the weightiest problems of the crisis. Even before the war the trade balance of the United States with Europe was decidedly active a one—average annual export, 1910-14, 63.3 per cent., imports, 49.6 per cent. (See Appendix, Table IV.) The difference was covered by the money sent by immigrants, expenses of Americans in Europe, and interest on American securities in the hands of Europeans. The trade balance became even more favourable over against Europe during the post-war period: export to Europe, 1923, 54.4 per cent., import 31.8 per cent. And as American securities had during the war been bought back by Americans, the difference had to be made up by the exportation of gold from Europe to America. In point of fact the gold supply of the United States is growing from month to month. The notes of the central bank of issue are actually covered more than 80 per cent. by gold. The time is not distant when they will be covered 100 per cent., in which case the problem of “gold inflation” will become, acute. The continued accumulation of gold in the United States is a characteristic sign for the shift in the economic importance of Europe and America. At the same time it demonstrates how divided up the world’s economy and business has become.

Somewhat like the boom, unemployment is of an irregular, zigzag-like character, but the opposite of the boom. In this connection it is important to remember that the number of unemployed in the most important capitalistic countries is at present, at the beginning of 1924, at least as high as three years ago, as the following figures show:

These figures are, of course, only approximately correct. The number of unemployed is surely greater everywhere than has here been given on the basis of official statistics. The unemployed are estimated differently in the different countries. But we may assume that the sources of errors are on the whole the same, so that the comparison is not upset thereby. The total number remains unchanged, taken by and large. (The figure 300 for Germany, 1923, is actually much too low for Germany, inasmuch as there was great unemployment in the Ruhr as a result of the Occupation, which, however, was not registered as such.) While in some countries, as for instance in England and Germany at this moment (end of April, 1924), the figures are on the decline, they rise in the United States and Poland. There is variation, but no absorption of unemployment, no reduction to “normal” status of the industrial reserve army. This is proof of the fact that the period of crisis in the phase of booms has not yet passed. (See Appendix, Table VII.).

Now as before there are no stable exchange conditions. Only in two countries, the United States and Sweden, is the money actually backed by gold. All other states are on a paper basis. During the last three years the exchange of Germany, Poland, and Austria collapsed completely, and stabilisation took place artificially on a new basis. We shall speak of the effects of this process upon income and fortunes later. The attempt of England to place the pound sterling back on a par with the dollar was unsuccessful. Nor can one c1aimthat the exchange chaos may be considered as having been ended by the stabilisation of the German and Polish exchanges. The last few months witnessed the collapse of the French franc: down to 130 to the pound sterling and then a rise to 65 to the pound. Several exchanges that were considered quite stable—those of Japan, Denmark and Spain—have depreciated considerably recently. The Japanese already shows a disagio of 20 per cent.

It would seem superfluous here to discuss in detail the catastrophic effect of fluctuating exchanges upon capitalistic business. These are generally known: instead of calculation and production—speculation; the advancement of trade-and-speculation capital at the expense of solid industrial capital; general insecurity, of which the big capitalists take advantage for the systematic despoiling of the little fellows. On the other hand, parasitic strata who busy themselves in the circulation field and who draw to themselves a part of the surplus capital. (See Appendix, Table VIII.)

An interesting phenomenon of the period of crisis is the enormous difference in the interest charged in the different countries for money loaned. While in the United States and England money is plentiful and interests rate are low—3 to 5 per cent.—the interest charged at this time in Germany for gilt-edged credits is 24 to 96 per cent. First class industrial undertakings pay 2 per cent. per month. A similar situation obtains in Finland, Poland, and in general in the states formerly designated as the “territory of underproduction.” The term “credit crisis” is used. In reality it is a question of the dearth of capital as a result of the impoverishment of this territory. Under normal circumstances such a divergence in interest rates could not be maintained for a long time, in fact, could not come to pass at all, since capital available for loans is very mobile and in the briefest possible time flows from one country over into another and evens up the rates of interest. (There is a constant difference within each country, depending upon the security of the investment.)

For the present, however, the political situation in continental Europe is so uncertain that English and American capital, despite the high rate of interest, makes its way there in only a limited quantity.

On the contrary, capital fled from impoverished Europe to the United States, where, to be sure, the interest was low, but where it seemed to be invested safely. According to the reports of the Department of Commerce, there were bought in the course of the year 1923:—

In other words, more capital was brought by foreigners to America than was exported from the United States.

Says the official report: “If it proved impossible for us to maintain our position as the first loaning country in the world which we were last year, this not due to lack of capital on our part, but rather to the unsettled conditions abroad, that made the investment in foreign countries less attractive for the Americans.”

To sum up: there is no uniform world economy, since the course of the business, the position of the labour market, the exchange situation, the interest rates do not move along parallel lines in the various countries, but in contradiction to each other.